Originally published on Substack.
Among the things every governor wants for the kids in their state, two are close to universal. They want them to learn to read, and they want them to grow up into good jobs that keep the state’s economy strong. Nearly every state has a plan for both, but plans need resources, partners and delivery capacity to become results, and most states are short on at least one. Starting January 1, 2027, the Federal Scholarship Tax Credit (FSTC) opens the door to a new stream of money in every state that opts in, money that can pay for tutoring, learning supports and career preparation. A governor who opts their state in can ensure the money serves goals the state has already set, and the earlier a governor gets involved, the more say they’ll have as this market grows.
Here is how it works. A taxpayer can give up to $1,700 a year, or $3,400 for couples filing jointly, to a nonprofit called a Scholarship Granting Organization, or SGO, and get the full amount back as a credit on their federal taxes. The SGO then gives that money to students as scholarships for things like tutoring, special needs services, books and technology. Families earning up to 300 percent of their area’s median income qualify for these scholarships, which covers most students in most states. Each SGO decides which students and which services it focuses on, so an SGO can be built to serve public school students and to support the goals a state has already set. Two models show what this could look like in practice.
Helping kids learn to read
Every state has goals and plans to make sure its students can read, but very few, if any, have enough money to turn those plans into reality. Louisiana spends $30 million a year on tutoring, which works out to about $122 per eligible elementary student. Wisconsin passed a literacy law in 2023 with $50 million behind it, and the legislature released only $9 million. Maryland’s per-pupil allotment that funds K-3 tutoring drops to zero in fiscal year 2027.
What works is not a mystery. North Carolina’s tutoring corps added about two months of learning for the students it served. When federal relief money ran out, the corps dropped from about 8,000 students to 2,373. Massachusetts kept funding its program, and some of its districts are seeing five or more months of extra learning. States, for the most part, know what to do. What they lack is a way to consistently resource and deliver it.
Here is how the FSTC can help. The state partners with, or helps create, a nonprofit that becomes an SGO for tutoring. The SGO coordinates the tutoring providers already working with the state’s districts and uses scholarship dollars to deliver more tutoring to the students who need it most, without drawing on the school’s budget. Teachers and principals are active advocates and facilitators of the program, encouraging eligible families to sign up and kids to show up consistently, just as they do for other school-based enrichment activities. States that already run tutoring through an independent nonprofit, like New Jersey and Minnesota, are closer to this than they may realize.
Three things make this model work:
1. Signing families up is easier than it sounds. SGOs generally have to confirm a family’s income, and that’s the biggest practical hurdle to doing this at scale. Treasury’s proposed rules, released October 2, lower it. For tutoring and special needs services at schools in federally designated low-income census tracts, the SGO can skip individual income checks, as long as it gets an independent audit each year confirming it followed the rule. Outside those schools, families on SNAP, TANF, WIC, Section 8 or SSI qualify by showing a recent award letter, and foster children qualify automatically.
2. Quality can be built in from day one. The SGO can require its tutoring vendors to be third party quality verified, leveraging existing badging providers such as the Stanford tutoring quality badge, align its tutoring curriculum to the state’s approved instruction materials list, and/or work under outcomes-based contracts that pay providers when students actually improve. A nonprofit SGO can also change course faster than a state agency as new research comes in.
3. The SGO needs donors, and governors can help. Treasury’s rules allow after-tax payroll deduction, which means the state and its largest employers can offer employees an easy way to give to the SGO from every paycheck. Add a governor and education chief who champion the SGO at every literacy event and with major in-state employers, and you have a steady, low-cost way to keep it funded.
Preparing people for good jobs
Governors spend a lot of their time working to build a strong economy: recruiting employers, training workers, and making sure young people finish high school ready for jobs that pay. Many already do this by bringing employers and schools together. In Rhode Island, the Governor’s Workforce Board launched PrepareRI, which now places about 300 high school seniors a year in paid internships with more than 90 employers. Indiana gives high school students up to $5,000 a year to spend on apprenticeships and other work-based learning, built on the same principle as the FSTC: money that follows the student. Leaders are putting real energy into these partnerships nationally, too. Louisiana’s Jump Start requires Career Diploma students to earn an industry-based credential and gives schools accountability credit for credential attainment. So far, the FSTC has not been part of that conversation, and it should be.
The need is easiest to see in the gap between students who get career preparation and students who don’t. In Delaware, 81 percent of students at vocational-technical schools get real work experience before graduating, compared with 29 percent at regular high schools. That difference matters later. Delaware high school graduates who did not seek further post-secondary education but who were working in a job tied to their pathway earn about $19,000 more annually than graduates who aren’t. That is roughly 40 percent more income for a young adult just starting out, enough to change whether they can afford a car, an apartment of their own, or a path toward owning a home.
Several of the costs a student faces on the way to a credential are on the list of eligible expenses for this tax credit: tutoring, books, supplies, equipment, a laptop and internet access. Others, like internships, certification exam fees and test prep, are a reasonable fit and will hopefully be made explicit in forthcoming Treasury guidance on exactly which expenses qualify. A career pathways SGO should start with what’s clearly allowed and grow as that guidance comes out.
For this model, the state partners with workforce board leaders, community colleges, major in-state employers and district leads to stand up an SGO focused on career-connected learning. The SGO gives scholarships to high school students in a career-connected learning pathway to cover costs for enhanced career supports: transportation, supplies, books, certification exam fees, and test preparation among others. As Treasury clarifies which other expenses qualify, such as whether internships or work-based learning count as a form of tutoring, the SGO can add them. Students sign up through their high school’s career program, and counselors and teachers make sure the students who would benefit most take part.
Having employers on the board does two things. First, it keeps the SGO focused on the credentials employers in the state actually hire for, not just the ones that are easiest to offer. Second, those employers become the natural first partners for payroll deduction programs to support fundraising. They’re helping train their future workforce, and their employees can help pay for it and get the money back on their federal taxes.
What a governor should do
Opt in. Then ask your K-12 education lead to build the literacy SGO and your workforce lead to build the career pathways SGO, and set a public date for both. In the meantime, go to the state’s largest employers and ask them to offer payroll giving, because that decides whether these SGOs are always fundraising or have steady revenue.
These are two models, and there are others worth exploring. An SGO that serves public school students well needs what any new organization needs: planning, coordination, people and money. A governor can’t supply most of that directly. What a governor can do is bring the right people together, make it a priority, and keep it a priority. States that do this will end up with SGOs built around their own goals, serving students long after today’s literacy and workforce plans have been rewritten. This new tax credit market is going to grow either way, and governors who get involved now will help decide who it serves.
Nicole Pollock is President of Education Reform Now.